The Amazon Profitability Death Spiral is the race to the bottom. Whether you are deep on the Death Spiral or just flirting with it, you are not alone.
The Amazon Profitability Death Spiral is a simple series of events for all brands. First, your Amazon ecommerce booms and a bunch of third-party sellers flood Amazon (also true for any other marketplaces).
This high volume of unauthorized sellers creates competition. The unauthorized sellers lower their prices even more to win the Buy Box. Because the Amazon algorithm favors price (customer centric mission), you lose the Buy Box (can happen in a 1P or 3P relationship). Then your brick and mortar starts to price match with Amazon, so your retail profits erode because you are hit with concessions, buy back charges, price match guarantees, and more...
It does not stop there.
Your Amazon profits erode and before you know it all channels are less profitable. And you find yourself at the bottom of the Death Spiral not able to make a profit or as Amazon calls it your product is CRaPed out.
Watch this video to learn more about the Death Spiral
We have talked to many executives who find themselves in the profitability Death Spiral. The results of the Death Spiral are painful and erode brand equity, sales, and profitability. The good news is you can fix this problem in three steps.
Three Steps to Get Out of the Profitability Death Spiral
Step 1: Clean Up Your Amazon Sellers aka: Narrow Distribution
Identify the rogue or unauthorized sellers so you can take control of your distribution. This can be manual and very time consuming, but it doesn't have to be this way. Pattern has technology that scans over 4,000 websites and gives brands visibility into those who are not compliant with their prices.
Then, once you have identified the sellers you can quickly see which ones are causing the channel conflict and reach out with a eControl law firm like Vorys. As eControl experts, Vorys will know the laws and regulations to help you stop these sellers from causing pricing issues. Once you are done cleaning your channel, and have a proactive strategy in place using both tech and an eControl firm, you can move to Step 2.
Step 2: Achieve Price Stability aka Create MAP Policies
Once you have a clean channel of sellers you can move into the next step, which is creating MAP (Minimum Advertised Price) policies that can be used to enforce sellers on Amazon and all other digital channels. Setting a MAP policy is the strategic next step for a brand to enforce its pricing strategy and identify rule breakers on Amazon and across other marketplaces. When a seller is abiding by MAP, it means they are not dropping their prices, so a product’s price will start to stabilize and protect all your channels, even retail. Through its millions of data points and insights, Pattern helps its brands identify MAP violators who show up to wreak havoc on price and your brand.
To help achieve price stability, it is also important to align your promotional strategy to all channels. Otherwise, the promotions can provide ways for sellers to get your inventory and sell if for less later.
After you have aligned your sellers with an enforceable MAP policy, then you can move into the next step, which is being proactive with enforcement and takedowns.
Step 3: Proactive, Data-Driven Enforcement aka Takedowns
Pattern has built technology that scrapes thousands of websites and quickly identifies rogue sellers who are breaking MAP. Our Predict software identifies leaky gaps in your distribution, tracks sellers, and monitors historical and real-time pricing across Amazon so you can maintain brand control.
It is important to take a data-driven approach to identify, enforce, and take down sellers who erode your price and profit.
Let’s Get Your Brand Out of the Death Spiral
We (Pattern) helps brands do exactly this. You don’t have to feel alone or keep playing whack-a-mole. Having approved and legitimate sellers on Amazon sets omni-channel price parity and enforces your MAP policy, so you can win the Buy Box, increase traffic and conversion, and achieve profitability on Amazon and beyond.
Did You Know: by maintaining brand control on Amazon, you are able to make concentrated investments in content, SEO, customer service, which results in improved ad consistency and performance.